Cold weather curbs outdoor eating as COVID-19 keeps dining rooms closed

The wintry months are a slow time for many restaurants across the U.S., but this year is likely to add an extra chill on much of the industry as cold weather keeps customers from eating outdoors and coronavirus restrictions shutter dining rooms.

The struggles of smaller restaurants, especially those reliant on dine-in service, could benefit larger chains such as Chipotle Mexican Grill Inc. and Outback Steakhouse-owner Bloomin' Brands Inc. with the means to invest in improved digital and delivery operations, experts say.

"The business is going to be much more corporate, much more chain-oriented in the future," David Henkes, a senior principal at restaurant research and consulting company Technomic, said in an interview.

The pandemic has put much of the industry under strain for almost a year, though bigger chains have recovered faster than smaller independent restaurants. In the U.S., sales at restaurants and bars fell 21.2% in December from the year-ago period, while jobs in the sector remained 19.3% lower from where they were a year ago.

Before the pandemic hit the U.S., quick-service chains accounted for just more than half of total sales at restaurants. But that share has grown to about 60% in recent months after hitting a high of nearly three-quarters of total industry sales in April, according to U.S. Census Bureau data.

Smaller restaurants and their larger corporate peers have weathered similar challenges to business during the pandemic. Bigger chains have navigated these challenges better than their smaller rivals.

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Analysts expect Chipotle will report same-restaurant sales growth of 6% for the quarter ending Dec. 31, 2020, a drop from the 13.4% growth in the year-earlier period but an improvement from the 9.8% drop for the quarter through June 30, according to S&P Capital IQ.

In 2020, Chipotle expanded its delivery footprint by adding new partners and opening more U.S. locations with drive-thrus, which the company calls Chipotlanes, Scott Boatwright, chief restaurant officer, said in an email. Approximately 70% of Chipotle's new restaurants in 2021 will feature Chipotlanes, Boatwright said.

Bloomin' Brands, which also operates Carrabba's Italian Grill, has a robust carry-out and delivery business that the company introduced prior to the pandemic, and it is following all state and local laws related to in-restaurant and outdoor dining, CFO Chris Meyer said in an email. The company reported a 12.8% year-over-year drop in U.S. same-restaurant sales for the quarter ended Sept. 27, 2020, while analysts expect that drop to narrow to 10.1% for the subsequent quarter.

Shake Shack Inc., meanwhile, on Jan. 12 reported $157.5 million in revenue for the quarter ended Dec. 30. Comparable sales for the period were down 17.4% year over year but have improved each month since April. The company recently launched curbside pickup for online orders and started testing delivery in Miami with plans for expansion to other cities later this year. Shake Shack did not respond to media inquiries.

No picnic

The reliance on outdoor dining has grown as localities enact new restrictions on dining rooms. New York City made permanent a program introduced during the pandemic that allows expanded outdoor dining. As colder weather makes outdoor dining less appealing, struggling restaurants and landlords are going to have to keep figuring out the best way to move forward, Clark Wolf, president and founder of restaurant and hospitality consulting firm Clark Wolf Co., said in an interview.

"The next three months are going to be the worst" of the pullback for many restaurants, Wolf said.

To cope, restaurants can try to deploy space heaters in outdoor dining spaces or set up tents for outdoor dining, but neither is a great option as temperature drops get worse, Henkes said. Heaters are less effective in more extreme cold, and using tents means some restaurants would offer accommodations to diners that are similar to shuttered indoor dining rooms.

"Restaurants are in a real pickle," Henkes said. "We've always expected the winter to be a tough period and a period where a lot of restaurants that were able to make a go of it during the summer are not going to make it."

At Olive Garden and LongHorn Steakhouse parent Darden Restaurants Inc., analysts expect same-restaurant sales to drop by a third year over year for the quarter ending Feb. 28, compared to growth of 2.3% for the year-ago quarter. The pullback, however, represents an improvement from earlier in the pandemic, when Darden reported a near-50% drop in same-restaurant sales for the quarter through May 31, 2020.

Darden executives expect to exit the pandemic with stronger brand positioning and streamlined operations as sales recover, UBS analyst Dennis Geiger said in a Jan. 11 report.

"Expectations are that off-premise demand will settle into levels above pre-COVID levels, with [Darden] enhancing its operations and technology for speed and service," Geiger said.

Darden did not respond to a request for comment.

Rite of spring

Restaurants dependent on dine-in sales could close for the winter with the hope they can reopen in the spring when more people are expected to be vaccinated and the warm weather returns.

Faced with the prospect of going out of business in one way or the other, some restaurants are opting to serve customers indoors in defiance of shutdown orders, Technomic's Henkes said. The enforcement of dining restrictions is spotty given that rules vary by state and in some cases municipality, and aside from the public health risks this entails, defying shutdown orders can leave restaurants open to consumer backlash, Henkes said. Yelp Inc. announced Jan. 12 that it will begin displaying information on safety protocols on company pages based on user feedback.

Some restaurants frustrated by pandemic restrictions have turned to the courts to push against what they view as ham-fisted government mandates. The Oregon Restaurant and Lodging Association and Restaurant Law Center unsuccessfully sued Oregon Gov. Kate Brown in November over an executive order that limited restaurants to take-out and delivery only.

"It seems that there's a lot more restaurants that are willing to flout the law now than perhaps back in March, April and May," Henkes said.

With so many restaurants closing, the strong have the potential to emerge even stronger once the pandemic passes, though the competitive advantage for larger chains could be temporary once restaurant development re-accelerates, Sharon Zackfia, a William Blair & Co. analyst, said in a Jan. 19 note. On the other hand, establishing digital relationships with consumers and earning a place in their routines will likely be good hedges when competition heats back up, she said.

"The next few years could represent a once-in-a-lifetime opportunity for restaurants," Zackfia said.